Euro market maintains solid pipeline

It was another busy week, as the European market shows no signs of abating. According to researchers, European supply is running 40% ahead of issuance this time last year, meeting forecasts that places year-end volume for 2003 at E165 billion (US$192.5 billion), 35% over that recorded in 2002.

Dresdner Klienwort Wasser- stein pegs market volume for the rapidly closing October at more than E20 billion (US$23.3 billion) and another E25 billion (US$29.7 billion) is expected before the close of the year.

"While this is similar to last year's fourth quarter volume, the market landscape is not the same - the composition of the current pipeline, the nature of the demand and the macroeconomic outlook all differ," said analysts at the bank.

Analysts at Morgan Stanley state that, despite the large issuance roster, spreads will not necessarily widen. Morgan points to RMBS deals that have seen spreads tighten despite the record issuance of $83 billion this year already. "In our view, macro events and corporate spread volatility are more likely to influence ABS and CMBS spreads than issuance volumes," said analysts.

Investors looking for value in the ABS and the corporate sector have a few names to select from, as the dominating RMBS issuance appears to be tapering off a bit, though at least E7 billion (US$8.16 billion) remains circulating in the pipeline.

Two large transactions are originating from the Italian government, slated for issuance in the coming months. These include a E3 billion (US$3.5 billion) deal to finance a high-speed rail link and a E5 billion (US$5.8 billion) securitization of social security payments. The Spanish government recently approved the securitization of E1.5 billion (US$1.75 billion) tariff deficit for Spanish electricity utilities incurred between 2000

and 2002. According to market reports, most of the major Spanish electricity companies have agreed to securitize through Unesa, the umbrella group that covers Spain's electrical companies.

The shortfall experienced during the two-year period comes as a result of the strict government-dictated fixed pricing tariffs that created a gap between the cost of generating electricity and a higher than anticipated demand. The deficits incurred follow: Endesa E658 million (US$767.8 million), Iberdrola E518 million (US$604 million) and Union Fenosa E178 million (US$207.7 million), with the remainder allocated to HidroCantabrico and ENEL Viesgo. The tariffs will continue until 2010 and payment of the existing deficit will be included in the calculation of future government tariffs. Market sources expect the deal will be completed before year end.

On the whole-business end, a couple of U.K. pub names began circulating. The much talked-about Punch Taverns restructuring of its two prior securitization deals saw its GBP965 million (US$1.62 billion) singular structure marketing. It offers investors GBP150 million (US$251.8 million) of Ambac wrapped triple-A notes, a total of GBP600 million (US$1.07 billion) single-A notes offered in two tranches of floating and fixed-rate notes, and a E215 million (US$361 million) triple-B piece. Proceeds of the sale will be used to repay GBP545 million (US$915.2 million) of existing debt, to acquire 446 pubs currently outside of the securitization portfolio and for future acquisitions.

The GBP1.9 billion (US$3.12 billion) pub deal for Mitchells & Butlers also began pre-marketing three Ambac wrapped triple-A rated tranches. Investors also have the choice of GBP700 million (US$1.17 billion) of single-A notes offered as fixed and floating rates and GBP200 million (US$335.9 million) of triple-B notes. According to industry sources, despite the growing number of pub deals this transaction makes it only the second wholly managed pub securitization, following the launch of Spirit Funding ltd last year. Mitchells & Butlers is the second largest managed pub group in the U.K. and the majority of the securitization proceeds will be used to pay off its existing bank debt. Royal Bank of Scotland and Citigroup Global Markets are co-managing both pub deals.

On the CMBS side, industry sources expect a number of names to price before the end of the year. Preliminary marketing for a second deal from Deutsche Bank's CMBS program began last week. The E550 million (US$642 million), Deco 2003-Centro is backed by a single property loan for the German shopping mall, Centro Oberhausen. There were also talks of a new EloC deal that will begin marketing in the coming weeks. Industry sources said this is expected to be the first deal that will contain pan-European loans under the Morgan Stanley-sponsored program.

http://www.asreport.com

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.